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Bond Valuation

Analyzing a Bond Portfolio

A porfolio consists of the following nine bonds: 1. Reynolds Amern 2. Donnelley RR 3. Altria Group 4. Alcoa Inc 5. Aetna Inc 6. KLA Tencor 7. Hospitality PRO 8. GE Capital 9. Sempra Energy Part A: 1. For each of the bonds listed above, find the coupon rate, payment date, rating, years to maturity, yields to call,

Market Trades a Default Free Zero Coupon Bond

The market trades a default-free zero coupon bond that pays $100.00 in one year. This bond trades at $94.34. Also traded is a coupon bond that pays a coupon of $4:00 after six months, and makes a final payment of $104:00 (the last coupon and the principal) in one year. This bond trades at $102:00. Moreover, a six month zero-coup

Financial Policy and Strategy

The contributors of capital and the respective share of the balance sheet for a company are this: 33.3% common stock with an expected return of 15% 33.3% preferred shareholders with a 9% expected return 33.3% bondholders with a yield to maturity (YTM) of 6% A corporate tax rate of 40% What is the weighted average cost

Estimate the cash price of a bond with a value

Suppose that 6 month, 12 month, 18 month, 24 month, and 30 month Zero rates are 4%, 4.2%, 4.4$, 4.6%, and 4.8% per annum with continuous compounding respectively. Estimate the cash price of a bond with a value of 100 that will mature in 30 month and pays a coupon of 4% per annum semiannually. The bond pays $2 in 6, 12, 18 and

Investors: short-term rates and matured bonds

What should investors do when rates are increasing short-term and matured bonds? When rates are falling, long-term bonds will have capital gains from market price increases, so what would be a defensive strategy? While many investors may devise low risk strategies and strategies to mitigate risks, upheavals can catch even

Corporate Finance: Six problems about bonds

I. The Sampson Company issued a $1,000 bond 5 years ago with an initial term of 25 years and a coupon rate of 6%. Today's interest rate is 10%. 1) What is the bond's current value if interest is paid semiannually as it is on most bonds? 2) What is the value of the bond if the bond's interest is paid annually? II. Assume th

Price of bonds, purchasing power & revised lease payments

1. The yield to maturity for 15 year bonds is as follows for four different bond rating categories. Aaa 9.4%...........................Aa2 10.0% Aa1 9.6%..........................Aa3 10.2% The bonds of Falter Corporation were rated as Aa1 and issued at par a few weeks ago. The bonds have just been downgraded to Aa2. Determin

Price Wars: Example Problem

In some industries, competition can take the form of price wars. When this occurs, supply is greater than demand and prices usually come down to attract customers. Healthcare providers compete for consumers, but healthcare costs continue to rise. What may explain this?

Bond Valuation and Yield to maturity

What would you be willing to pay for a $1,000 bond paying $70 interest at the end of each year and maturing in 25 years if you wanted the bond to yield the following rates of return? a. 5 percent b. 7 percent c. 12 percent (Note: At maturity, the bond will be retired and the holder will receive $1,000 in cash. Bonds are ty

Stocks and Bonds Current Yields

A new client, Dr. Washington, has demonstrated a particular thirst for knowledge of stocks and bonds and has asked that you put together an example of these investments to illustrate how they work. Calculate the returns on the following investments (include the US$ and percent) to illustrate how they work. 1. A stock that does

Bond Valuation

Please see attachment for proper format of problems. P6-25 Bond valuation-Semiannual interest. Calculate the value of each of the bonds shown in the following table, all of which pay interest semiannually. Bond Par Value Coupon interest rate Year to maturity Required annual return A $1,000

Probability and Returns

See attached file for proper format of template. Profitability and Returns. The assignment requires that I consider whether this is a good investment, by comparing it with investing in a bond fund. I will need to graph the opportunity set, calculate the weights, expected returns, variance and standard deviation in the at

Comprehensive Bond Problem

Please explain how you get answers and don't use PV in Excel. Attached also are PV tables. 2. Bell Company sells $2,400,000 of 6% bonds on June 1, 2010. The bonds pay interest on December 1 and June 1. The due date of the bonds is June 1, 2014. The bonds yield 5% On October 1, 2011, Douglas Company buys back $72

Weighted Average Cost of Capital (WACC) for Dragon Breweries

See attached file. Please illustrate all calculations in the yellow table below from the Excel file. Please build the formulas in the Excel sheet. Dragon Breweries (DB) has the following balance sheet: Dragon Breweries ($ in millions) Fixed assets $200,000,000 Short-term debt $20,000,000 Long-term debt $80

Finding the Beginning (Buy) Price of a Bond

Question: You buy an 8% annual coupon bond that has a 15 year maturity and a required return of 12%. The par value is $1,000. You sell the bond five years later when the required return is 10%. What is the beginning (buy) price of the bond?

Purchasing power increase on junk bond investment

Your financial advisor tells you that you can earn 15% this year on a junk-bond investment. You anticipate that the inflation rate will be 2.8% over the same year. By how much will your purchasing power increase? 11.87% 7.95% 8.46% 1.12% 9.56%

Coupon Bond Valuation

I am truly stumped! I have tried to understand bond valuation and cannot for the life of me. I need to fill in the answers in the gray cells based on the information provided up top in the spreadsheet.

Yield to Call and Realized Rates of Return

Seven years ago, Goodwynn & Wolf Incorporated sold a 20 year bond issue with a 14% annual coupon rate and a 9% call premium. Today, G&W called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized rate of return for investors who purchased the bonds when they were issued and who surrender

Various Stock and Bond Questions

1. Par value of a stock refers to the: A) Issue price of the stock. B) Value assigned to a share of stock by the corporate charter. C) Market value of the stock on the date of the financial statements. D) Maximum selling price of the stock. E) Dividend value of the stock. 2. Preferred stock on which the right to

Problem on Bonds

4. On January 1,2009, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: A. Bond Interest Expense

Valuing Bonds, Interest Rate Risk and Bond Yields

1. Valuing Bonds What is the price of a 10-year, zero coupon bond paying $1,000 at maturity if the YTM is: a) 5 percent? b) 10 percent? c. 15 percent? 2. Interest Rate Risk The Faulk Corp has a 6 percent coupon bond outstanding. The Gonas Company has a 14 percent bond oustanding. Both bonds have 8 years to maturity,